Rates Technology Inc. v. Speakeasy, Inc.
685 F.3d 163
2d Cir.2012Background
- RTI owns two patents on automatic call routing by cost; in April 2007 RTI notified Speakeasy of infringement and proposed a lump-sum settlement under RTI’s tiered pricing.
- The Covenant Not to Sue barred Speakeasy from challenging patent validity and included a $12 million liquidated damages provision for breach.
- Best Buy acquired Speakeasy; the Covad defendants later merged with Covad entities involved in the deal.
- RTI learned during due diligence in 2010 that Speakeasy/Best Buy information was shared with Covad, facilitating a California action that challenged patent validity.
- RTI filed this lawsuit on August 31, 2010 alleging breach of the no-challenge clause; the district court dismissed under Lear v. Adkins; the Federal Circuit transferred the appeal to this court, which affirms the district court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lear precludes enforcing a no-challenge clause entered before litigation. | RTI argues public policy favors patent validity challenges and pre-litigation clauses should be scrutinized. | Speakeasy argues no-challenge clause is enforceable under Lear despite pre-litigation timing. | No-challenge clause entered pre-litigation is unenforceable. |
| Whether pre-litigation settlements should be distinguished from post-litigation settlements for enforceability. | RTI contends public policy should void such clauses in pre-litigation contexts. | Defendants rely on MCA and related cases allowing post-litigation protections. | Pre-litigation covenants prohibiting challenges are unenforceable; settlement timing matters. |
| Whether lack of discovery in a pre-litigation agreement undermines enforceability. | RTI argues no discovery occurred, supporting unenforceability. | Defendants emphasize discovery in post-accusation settlements supports enforceability. | Lack of pre-litigation discovery supports unenforceability; discovery context matters. |
| Whether Baseload Energy dicta should control over Lear in pre-litigation no-challenge clauses. | RTI urges Baseload dicta extending enforceability. | Defendants urge Baseload as persuasive but not controlling. | Lear controls; Baseload dicta not extended to pre-litigation clause here. |
Key Cases Cited
- Lear, Inc. v. Adkins, 395 U.S. 653 (U.S. 1969) (licensee estoppel repudiated; public policy favors patent validity challenges; balancing test established)
- Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001) (no-challenge clause enforceable if an accused infringer has challenged validity after discovery)
- Warner-Jenkinson Co. v. Allied Chem. Corp., 567 F.2d 184 (2d Cir. 1977) (settlements after litigation may avoid estoppel unless no-challenge clause present)
- MCA v. Golden State Advertising, 444 F.2d 425 (9th Cir. 1971) (pre-litigation covenant void to prevent evasion of Lear’s policy)
- Baseload Energy, Inc. v. Roberts, 619 F.3d 1357 (Fed. Cir. 2010) (suggests language clarity can affect enforceability; not controlling here)
- Idaho Potato Comm’n v. M&M Produce Farm & Sales, 335 F.3d 130 (2d Cir. 2003) (establishes Lear balancing test for patent disputes)
- Wallace Clark & Co. v. Acheson Indus., Inc., 532 F.2d 846 (2d Cir. 1976) (consent decrees can have res judicata effect on patent validity)